Achieve your goals across life stages with mutual funds

Financial planning traditionally has focused on saving money in a bank or, at best, investing in a fixed deposit (FD). Goal identification across life stages has almost been inconspicuous by its absence. Is this prudent? Might not be. Goals should be identified along with a time frame to attain them. Mutual funds can help do precisely this, given their benefits of diversification, portfolio management, and reasonable liquidity. However, choosing the right fund from a wide variety can be a daunting task. Read on to understand how you can select the appropriate fund in line with your goals.

Identifying and classifying goals based on time horizon

Before selecting a mutual fund, identify your goals. Then, determine the time frame within which these goals need to be attained. Some goals are near or short term, some are medium and long term. For instance, building an emergency corpus is an urgent requirement, while building a retirement fund is a long-term goal.

Over time, many of our common goals like buying a house, education for kids, marriage etc have evolved into newer goals which keep pace with the changing social and economic realities.

Goals across life stages
 Segregation of goals

For illustration purpose only

Risking profiling and asset allocation

The next step is to estimate the cost of each goal. For that, you need to estimate the current cost of the goals and adjust it with inflation (rise in prices), which will help determine the future cost of goals. For instance, the current cost of a car is Rs 8 lakh but you want to buy it after three years. After factoring in inflation at 7%, the expected future cost of the car is approximately Rs 10 lakh.

Further, investors need to gauge their risk-taking ability via risk profiling, which will help in selecting the right investment avenue. Risk profiling can be undertaken via a formal questionnaire-based process where investors have to answer questions that probe their risk-taking capacity and suitability. Important factors that determine the risk profile are age, income, expenses, financial commitments, investment horizon, and liquidity requirements. Based on the risk profile, individuals are classified into conservative, moderately conservative, moderate, moderately aggressive and aggressive.

Options provided by mutual funds - on fixed income, equity and hybrid categories - provide a better and easier means for investors to meet their investment goals. The table below categorizes mutual funds based on goal periods.

Mutual funds offer a unique mix of products suitable for all goals:

Past performance may or may not be sustained in future.

Note – Categorized major mutual fund categories based on suitability of investment horizon; investors should, however, do their risk profiling before investing in any category.
Source: CRISIL Research

Summing up

Mutual funds are market-linked products and the performance of the underlying asset classes impacts a scheme’s performance. Due diligence on the scheme is a must before investing along with the review of mutual fund investments regularly. If the goals are attained, YOU need to rebalance YOUR investments as per new goals. Also, do remember to refer to the Scheme Information Document and Key Information Memorandum of the schemes carefully to understand the features of the schemes and detailed risk factors associated with the scheme.


Any comparison mentioned in this material is for general information only and not intended to be relied upon as investment advice and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Information and content herein have been provided by CRISIL Research, a Division of CRISIL Limited, and is to be read from an investment awareness and education perspective only. Recipient are advised to seek independent professional advice before making any investments. The views / content expressed herein do not constitute the opinions of SBI Mutual Fund or recommendation of any course of action to be followed by the reader. SBI Mutual Fund / SBI Funds Management Private Limited is not guaranteeing or promising or forecasting any returns.
In view of the individual nature of the financial or tax consequences, each investor is advised to consult his/her own financial/tax consultant with respect to specific tax implications arising out of their participation in investments. The tax rates are as per current tax laws and are subject to change.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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An investor education initiative, SBI MUTUAL FUND.
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